Outstanding home mortgages hit 10-year high

TAIPEI, Taiwan -- Outstanding home mortgages in May hit a new 10-year high despite a series of measures announced by the government to cap excessively high housing prices in Taiwan, according to the local central bank.

Meanwhile, outstanding loans for building construction projects in May also hit a 10-year high, the central bank's statistics showed.

The central bank said that outstanding housing loans in May totaled NT$5.725 trillion (US$193 billion), up about NT$24.4 billion or 0.43 percent from April, and also up 4.78 percent from a year earlier. It was the second consecutive month for home mortgages to grow more than NT$20 billion month-on-month.

In May, outstanding loans for building construction projects rose NT$9.97 billion or 0.65 percent from a month earlier to NT$1.554 trillion. The May figure was also 6.27 percent higher than a year earlier.

The central bank said the significant growth in home mortgages reflected an increase in new home supply. It expects the growth will continue later this year as property developers transfer the rights of the property to their clients.

The bank said the increase in outstanding loans for building construction projects resulted from property developers' fears that tighter construction regulations which are scheduled to take effect next year will affect their sales. As a result, many of them rushed to launch new projects this year, the bank added.

Market analysts said although the government has come up with measures, including a higher tax on homes in which owners do not dwell, loans related to property purchases and construction remained on the way to growth.

They said that's why the central bank announced Thursday after the latest quarterly policymaking meeting it will tighten its control on the local property market, focusing on capping the loan-to-value (LTV) ratio — the percentage of a home's value that a bank is allowed to loan to the property buyer.

Among the new tightening measures, the central bank is expanding coverage of its LTV controls to eight more districts in New Taipei City and Taoyuan County, where home prices have risen significantly. Controls are already in effect in all districts of Taipei and 13 districts in New Taipei. The LTV ratio in these closely watched districts has been set at 60 percent — meaning banks can only lend home buyers up to 60% of the value of the home.

In addition, the central bank has redefined what a luxury home is around the country to further lower the LTV ratios the banking system is allowed to provide to luxury property buyers.

Analysts said that with a lower LTV ratio, depleting liquidity is likely to create some adverse impact on the local home market, starting from the second half of this year.

The central bank's new tightening measures pushed down property stocks in the local bourse on Friday with the construction sub-index on the Taiwan Stock Exchange down 0.65 percent, compared with a 0.15 decline in the broader market.